SUSTAINABILITYIFAC’s Sustainability Dialogue

AAA / IAAER

2024 Midyear MeetingJanuary 2024

DAVID MADON

Director – Sustainability,
Policy & Regulatory Affairs
davidmadon@ifac.org

BUILDING A GLOBAL SYSTEM - ISSB UPDATE❑IFRS S1 and IFRS S2 published June 2023.
• IFRS S2 addresses climate-related disclosures.
• IFRS S1 - how to prepare and report sustainability-related financial disclosures.
• Also, addresses risks and opportunities beyond climate.

❑IOSCO endorsement in July 2023.

❑FSB has asked IFRS Foundation to take over the monitoring of progresson companies’ climate-related disclosures from the TCFD.

❑ISSB Agenda Consultation (September 2023).
• 4 proposed topics - Biodiversity, human capital, human rights, integration inreporting.
• IFAC letter focused on successful implementation of S1/S2, global baseline forholistic narrative analysis, move with pace to do more.

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BUILDING A GLOBAL SYSTEM - ISSB UPDATE❑COP28 Announcements:❑ISSB Adoption & Implementation:• Emmanuel Faber appointed to second term (2027).
• 400 organizations sign declaration - advance ISSB climate global baseline.
• IFRS Foundation launches Knowledge Hub with support of ISSB. PartnershipFramework members.

•••
•
••
•

Nigeria and Zimbabwe early adopters.
Followed by Ghana and Kenya.
Singapore to mandate climate-related disclosures from 2025.
Support from other S.E. Asia (Indonesia, Malaysia, Philippines)
Brazil to adopt ISSB requirements effective 2026.
Chile and Colombia mandate SASB Standards.
UK has published information on its framework for creating UK Sustainability
Disclosure Standards (UK SDS) based on the ISSB standards by July 2024.
• Turkey announced at COP28 progress to adopt S1 / S2.
• Australia consultation builds on S2; hopefully broader reporting to follow.
• Sustainability Standards Board of Japan plans to issue EDs in MAR 2024.
[I commend the SSBJ for its plan to incorporate ISSB Standards into Japaneserequirements…,” Emmanuel Faber]

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BUILDING A GLOBAL SYSTEM - EU UPDATE❑ European Sustainability Reporting Standards (ESRS) finalized as“Delegated Acts” (July 31) - effective in 2024, with assurance.
••••

2 cross-cutting stds. + 10 topic standards = 1000 data points.
Covers PIEs, so SME standards needed (under development).
Includes non-EU entities with operations in EU.
Extraterritorial reach eventually requires consolidated reporting to EU.

❑ Last minute calls for reduction in reporting burden on companies.
• Made most reporting subject to materiality assessment.
• Agreed financial materiality definition with ISSB.

❑ Two sides to alignment and “interoperability”:• Companies should not have to report twice.
• If an ESRS reporting company will comply with S2 on climate, what is ISSB role?

❑ IFAC PoV - “interoperability” applies to ISSB global baseline + additional
jurisdiction requirements (i.e., the “building block” approach).
• Building a network of “close enough” national requirements linked throughmultiple interoperability agreements / tables is not the goal.

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BUILDING A GLOBAL SYSTEM – USA UPDATE❑ SEC Rules to Enhance and Standardize Climate-Related Disclosures forInvestors (March 21, 2022).
❑ Context:• 16,000 comment letters.
• It’s about investors, not climate….said SEC Chair Gensler.
• California law (October 2023) requires companies doing business in CA to disclose
S1-2-3 GHG emissions + climate-related risks/opportunities.
✓ Impacts 8000 reporting entities (revenue > $500mln) starting 2026.

❑ Lack of consensus in US on climate and ESG; S3 is an issue.
❑ Why US needs to pass SEC Rule:• No SEC rule, then US companies will be required to report under ESRS.
• No SEC rule, then US companies will build systems for ESRS reporting.
• No SEC rule, then no basis for discussions with EU/others about equivalency.

❑ Importance of US to ISSB—according to Emmanuel Faber:••••

US companies compete globally for capital, so need climate disclosure.
IASB/ISSB and FASB aligned on financial materiality.
“Market adoption” in US provides a role in building / shaping ISSB’s global baseline.
ISSB based on SASB and TCFD [SoP: 93% SASB / 88% TCFD]…so a “seamlesstransition” to ISSB reporting.

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BUILDING A GLOBAL SYSTEM – IFEA (INTERNATIONAL FOUNDATION FOR ETHICS AND AUDIT)❑IAASB• ISSA 5000 exposed for comment August 2023 with extensive stakeholder outreach.
• Final standard targeted for December 2024.
• Key features include:✓✓✓✓✓✓✓❑

Replaces IESA 3000 (Revised) for sustainability-specific assurance engagements
Practitioner agnostic
All sustainability topics
All mechanisms for reporting (CSRs, annual reports, integrated reports)
All suitable standards and frameworks (i.e., ISSB, ESRS, GRI, etc.)
All intended users (i.e., investors or broader stakeholders)
Both limited and reasonable assurance engagements

IESBA• Two EDs to be released – International Ethics Standards for Sustainability Assurance(“IESSA”) and Use of Experts - following global outreach.
• Global standards on ethical considerations in sustainability reporting and assurance,including independence.
• Also practitioner agnostic – introducing a new section of the IESBA Code.

❑Boards providing an integrated solution that supports high-quality sustainability
disclosure, answering call from ISOCO/others.

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BUILDING A GLOBAL SYSTEM – IFAC’S POINT OF VIEW❑CONCLUSION• Harmonized, global system for sustainability reporting—that’s long-term goal.
• State of Play research tells us where we are and where we need to get to.
• Voluntary reporting has taken us far—but need mandatory reporting forconsistent, comparable, decision-useful, “investor-grade” information.
• Information must be subject to mandatory, high-quality assurance conductedin accordance with ISSA 5000 and requirements for ethics/independence andquality management.
• Global system needs time to evolve, but still the goal to greatest extent possible.

❑NEXT STEPS••••

Reporting under ESRS begins, including assurance.
ISSB to focus on adoption and implementation.
Deliberations – biodiversity, human capital, human rights, integration in reporting.
IFAC and Standard Setting Boards:✓ Proposed revisions to IESs to be published in April 2024.
✓ IFAC statement encourages sustainability as part of annual CPD requirements and mutual recognition.
✓ Continue research and advocacy on behalf of accountancy profession.

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THE STATE OF PLAY SERIES

https://www.ifac.org/knowl
edge-gateway/contributingglobaleconomy/publications/state-play-sustainabilitydisclosure-assurance2019-2021-trends-analysisPage 8 | Proprietary and Copyrighted Information

MAPPING GLOBAL REPORTING AND ASSURANCE PRACTICES

G20 +▪
▪
▪
▪

1400 largest companies
22 jurisdictions
3rd publication / 3-year trend
ESG Reporting & assurance

MAPPING ASSURANCE
PRACTICE: BEYOND-G20

2021 Key Findings

2019

84% 87% 89%

80% 83% 85%

reported some ESG informationof assurance was limited❑ More limited assurance (5%)

37% 44% 48%

81% 81% 81%❑ Less use of ISAE 3000 (Revised)obtained some level of assuranceof firms applied ISAE 3000 (Revised)

64% 64% 62%

35% 34% 38%

assurance engagements conducted by firmsof other service providers applied ISAE3000 (Revised)❑ Reporting rate(6%) to 89%❑ Assurance rate(16%) to 48%❑ More firm assurance (5%)

500 companies from 20 jurisdictions

2020

2021

MAPPING ASSURANCE PRACTICE: APPLICATION OF ISAE 3000 (REVISED)
AUDIT FIRMS

OTHER SERVICEPROVIDERS

Percent of assurance reports that use
ISAE 3000(R).

95%

38%

Percent of assurance performed“in accordance with” ISAE3000(R).

98%

53%

Percent of ISAE 3000(R) engagementsthat apply IESBA Code or otherinternational ethics code/std.

93%

28%

Percent of ISAE 3000(R) engagementsthat apply ISQC 1 or other international
quality control standard.

91%

38%
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A Deep Dive into Sustainability
Assurance Engagements❑ APPLICATION: This research identifies differences in theapplication of the IAASB’s standard ISAE 3000 (Revised) between
accountancy firm vs. other service provider engagements.
❑ STANDARDS: Accountancy firm engagements use IAASB
assurance standards, while OSPS currently use different standards
for different types of engagements.

❑ LEVEL: Current practice indicates that accountancy firm
engagements result in limited assurance reports. Other service
providers issue limited, modified, as well as reasonable reports.
❑ SCOPE: Accountancy firm engagements are generally broader
in scope. Other service providers are observed to specialize innarrower scope engagements, especially related to greenhousegas-related metrics.

IFAC POLICY & THOUGHT LEADERSHIP FRAMEWORK
1. Research & evidence-based policy
development / thought-leadership

Model for Research, Policy Development,
Advocacy & Engagement❑ State of Play series is foundational

2. Advocacy – bringing our research, messages
and points of view to life

3. Make IFAC’s global voice more local andrelevant through engagement❑ Collaboration with IFAC RMs and PAOs/NPs—bringing local relationships and insights❑ Selectively develop jurisdiction-specific strategies
and messaging❑ More with FoF (LATAM and Singapore in 2024)

Making global
views more
relevant &applicable tolocal
circumstances

IFAC’s global
voice: researchand evidencebased policy
development
and advocacy

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IFAC CROSS-FUNCTIONAL WORKSTREAMS & PROJECTSStandards &reporting
ISSB Initiative
Global System- Advocacy events- IFAC C2A- BB approach- ISSB adoption- HGBLEDs andConsultations-ISSB Agenda
ESRSs

Assurance

Preparer Focuslklkl

SoP 2022
SoP 2021
SoP 2020
SoP 2019

Integrated Mindset
Just transition & roleof financeBeyond the G20 SoP- regional approach

Getting to NZ 2020

Deep Dive Into Sust.
Assurance

Enhancing GHG
Reporting

ISSA 5000
Consultation

ESG for SMEs

Preparing for HQ
assurance events

Ethics &Good Gov.

Completing theEcosystem

Capacity
Building

ESG & Boardoversight

IPSASB &Sustainability

ISSB Partnership
Framework

IESSA Consultation

Carbon Markets

Awareness RaisingRole of Consultants Application of 3000
Enhancing Codeawareness - ethics &sustainability
OECD Corp. Gov.
Principles

Understanding
Sustainable FinanceMarkets

Education – IFAC
initiatives
Research:
The SoP Series
Focus on IM
PAO Check-List

Most recent priorities in green typeface
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4 KEY CHALLENGES FOR OUR PROFESSION….
AND ONE KEY ‘ASK’
1. INTEGRATED MINDSET- Sustainability starts inside ofcompanies- Bridging information silos- Connectivity/Integration insustainability/financial reporting

3. CAPACITY BUILDING- Awareness raising- Education / training / skills- Research – State of Play series- Sustainability reporting begins
inside of companies

2. GLOBAL REPORTING SYSTEM- Global Baseline- Building Blocks approach- Alignment / Interoperability

4. ASSURANCE & ETHICS- ISSA 5000 as the general
purpose assurance standard- ESG-specific IESBA Code- Level playing field/consistentoversight for all practitioners

SMART REGULATION- Prudential/“improvement”
regulatory approach- Safe harbors / limited liability- Opinion qualifications anddisclaimers

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